USCB Financial Holdings, Inc. — Q2 2023 Form 10-Q
Business context and period. USCB is a Florida bank holding company whose subsidiary, U.S. Century Bank, provides financial services primarily in South Florida. This unaudited report covers the quarter and six months ended June 30, 2023; comparisons are with the corresponding 2022 periods unless stated otherwise. Amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q2 / June 30, 2023 | Comparable period / prior date |
|---|---|---|
| Net income | $4.2 million; diluted EPS $0.21 | Q2 2022: $5.3 million; $0.26 |
| Six-month net income | $10.0 million; diluted EPS $0.51 | Six months 2022: $10.1 million; $0.50 |
| Net interest income before credit-loss provision | Q2: $14.2 million; six months: $30.2 million | Q2 2022: $15.6 million; six months 2022: $30.0 million |
| Net interest margin | Q2: 2.73%; six months: 2.97% | Q2 2022: 3.37%; six months 2022: 3.30% |
| Total assets | $2.23 billion | $2.09 billion at Dec. 31, 2022 |
| Loans, net of allowance | $1.58 billion | $1.49 billion at Dec. 31, 2022 |
| Deposits | $1.92 billion | $1.83 billion at Dec. 31, 2022 |
| Cash and cash equivalents | $87.3 million | $54.2 million at Dec. 31, 2022 |
| FHLB advances | $87.0 million | $46.0 million at Dec. 31, 2022 |
| Stockholders’ equity | $183.7 million | $182.4 million at Dec. 31, 2022 |
- Earnings and margins: Q2 net income fell about 21% year over year, primarily as higher deposit costs compressed margin. Six-month net interest income edged up 0.5%, but the margin declined. Q2 non-interest income rose 14% to $1.8 million, while non-interest expense rose 9% to $10.5 million. The efficiency ratio increased to 65.25% from 55.34%.
- Cash flow: For the first six months, operating activities provided $20.2 million, investing activities used $113.5 million, and financing activities provided $126.4 million. Financing included a $92.0 million net increase in deposits and $41.0 million net proceeds from FHLB advances.
- Liquidity and funding: Management stated liquidity resources were adequate. Estimated uninsured deposits were $1.0 billion, or 53.2% of deposits. The bank acquired $50 million of brokered deposits during Q2. It had no BTFP, discount-window, or correspondent-bank federal funds borrowings at quarter-end; $136.8 million of securities were pledged to the BTFP.
- Capital: The Company and Bank reported total risk-based capital ratios of 13.42% and 13.37%, respectively; the Bank reported a 9.30% leverage ratio and was well-capitalized under regulatory standards.
- Asset quality: The allowance for credit losses was $18.8 million, 1.18% of loans, versus $17.5 million at year-end. The company recorded $45,000 of net loan charge-offs for the six months. Non-performing loans were $486,000, or 0.03% of loans; $3.36 million of loans were graded substandard.
Material changes and unusual items
- Loan growth was 11.9% annualized from year-end; commercial real estate represented 62% of gross loans. Deposits grew 10.1% annualized, while FHLB advances increased by $41 million.
- Interest expense rose sharply: Q2 was $10.1 million versus $1.0 million in Q2 2022. Average cost of interest-bearing deposits increased to 2.94% from 0.34%, offsetting higher loan and other asset yields.
- The Company adopted CECL on January 1, 2023. Adoption increased the loan allowance by $1.1 million and the unfunded-commitment reserve by $259,000; the after-tax cumulative adjustment increased accumulated deficit by approximately $1.0 million. Comparisons of 2023 and 2022 credit-loss measures use different methodologies.
- Available-for-sale securities had a fair value of $218.4 million against amortized cost of $271.9 million; management attributed unrealized losses primarily to interest rates and spreads and concluded no credit-loss allowance was required. Accumulated other comprehensive loss was $46.3 million. Management reported that after-tax unrealized security losses reduced tangible book value by $2.41 per share; tangible book value was $9.40 per share.
- The Company repurchased 577,603 shares for $6.6 million during the first half, including 77,603 shares for $747,000 in Q2. At June 30, 172,397 shares remained authorized for repurchase. No Q2 common dividends were declared.
Outlook, commentary, and risks
The filing provides no specific quantitative earnings or growth guidance. Management’s commentary emphasizes continued loan and deposit growth, while noting that higher funding costs have pressured net interest margin. Interest-rate simulations showed a neutral balance sheet in year one and asset sensitivity in year two; under the modeled static scenarios, year-one margin was expected to decline in a +400-basis-point scenario. These estimates depend on assumptions about deposit behavior, repricing, and prepayments.
Key disclosed risks include deposit attrition and uninsured-deposit levels, interest-rate and liquidity risk, credit risk, real-estate and South Florida concentration, competition, economic conditions, and regulatory and operational risks. The loan portfolio is concentrated in commercial real estate, and management’s credit-loss estimates rely on forecasts and qualitative judgments.
On July 13, 2023, three former Bank shareholders sued six former directors over the 2021 preferred-stock exchange, alleging lack of authority and breach of fiduciary duty. Plaintiffs seek class-action status and damages exceeding $750,000, plus fees and other relief. The Company disputes the claims and intends to defend them; an adverse result could involve substantial damages, and insurance coverage is not assured. Management assessed the litigation as subsequent to quarter-end.
Most important facts for investors to verify
- Whether deposit costs, deposit mix, and reliance on brokered funding continue to pressure net interest margin and liquidity.
- Uninsured deposits (reported at 53.2%), deposit concentration, and availability of contingent funding and pledged collateral.
- Commercial real-estate concentration, loan growth quality, delinquency trends, non-performing loans, and adequacy of the CECL allowance.
- Interest-rate exposure and the sensitivity of earnings and securities values to changing rates; the filing reports significant unrealized securities losses.
- Developments, potential exposure, and insurance coverage relating to the preferred-stock exchange litigation.
- Capital ratios and share repurchases; management reported disclosure controls were effective as of June 30, 2023.